Incite 2012 Continued... GLOBAL CONSUMER CHALLENGE NEWSLETTER SUMMER 2012 WWW.INCITE.

WS Whilst the world watched in awe as the Olympics opened in London earlier this summer, the same week saw headlines of a 0.7% decline in the UK economy as the developed markets continue to recede. Meanwhile the BRIC 1 markets keep on showing stronger growth than most of the world, even through the recent downturn, with the Next 11 2 also doing well. As Jim O Neill, Goldman Sachs Asset Management Chairman who first coined the BRIC acronym and the term Next-11, predicted over a decade ago, these markets are taking the world by storm with their growing populations and increasing productivity. In order to survive and drive future success in this new world economy and unlock the growth potential in these markets, brands must engage with the local consumer rather than assume there is such a thing as a single global consumer. Coke and McDonald s are two brands that realised this early on and are now reaping the rewards. Never underestimate the local consumer Many companies struggle to unlock this great potential as they take their brand and products overseas, and fail to make a substantial or long term impact on the market. For example, while Best Buy appreciated the importance of China and pushed hard to enter the market, it has since had to close its stores and refocus its strategy on maximising the profitability gained from its stake in the local Five Star brand. The core of the issue lies in underestimating the local consumer and failing to figure out how to develop a fruitful, long standing relationship with them. Emerging markets is no longer a fitting term to use for many of the biggest economies in the world. One need only review the latest GDP figures or the Olympic results to realise that the likes of China and Russia have already emerged, while Brazil has overtaken the UK as the world s 6th largest economy. Yet the term is still used. Not only does it misrepresent the economies it is supposed to encapsulate, it also fails to capture the essence of the local consumer and leads many global companies to underestimate people in these markets. BECOMING A LOCAL BRAND

John Tearle explains how to unlock the potential of growth markets. Brands must engage with the local consumer rather than assume there is such a thing as a single global consumer Incite 2012 Continued... GLOBAL CONSUMER CHALLENGE NEWSLETTER SUMMER 2012 PAGE 2 They are seen as emerging individuals poor, lacking education and striving to get by, fundamentally basic and therefore easy to engage. The assumption that they are aspiring to be just like consumers in developed economies is particularly corrosive. In addition, it s easy to know the size of these markets, but tough for some companies to appreciate the diversity within them. Brazil is geographically larger than the European Union whilst China has nearly three times the population, yet it is easy to underestimate the enormous differences within these markets. Going from Xinjiang in western China to Fujian in the east can prove as stark a contrast as going from Paris to Prague. This fundamental underestimation leads many brands to assume, mistakenly, that using western imagery and celebrity endorsement to drive appeal through aspiration, combined with reducing pack sizes or product features to decrease the price of a product, will ensure success. No wonder so many brands struggle to become successful in a new market and have to retreat quickly, as locally developed brands shrug their shoulders and sell another million units. A great example from the tech world are the global mobile phone brands failing to succeed in China as the local brands such as Huawei and ZTE dominate the booming low end smartphone market. The reality is that these markets have already very much emerged. Yes, they continue to grow at an incredible pace as their population and productivity increases; however they are already established as key players in the global economy. We should similarly consider the consumers in these markets as well-established - there is a clear need to recognise that they are intelligent, passionate people with their own culture and aspirations built on generations of history that are fundamentally different from our own. Adapting your core DNA and becoming a truly local brand So what can brands do in order to realise the potential that the growth markets of the world offer? In our view, it is vital to adapt the

core DNA that runs through a brand and its products to make it personally and culturally relevant at a local level. Anyone who has been into a McDonald s in India, only to find that they do not sell hamburgers, will understand just how profound this adaptation needs to be. Furthermore flying to Beijing to find that the McSpicy Paneer Wrap you just enjoyed in Delhi is off the list illustrates the importance of recognising and embracing diversity. And even going as far as tailoring the marketing mix at a provincial level may be needed in order for a brand to succeed. However it is important to go beyond simply localising a product through its recipe or features, with a local cultural reference plastered on top, and actually adapt what lies at the heart of the brand - all that it does and all that it stands for. The strongest relationships, for example those between best friends or married partners, are developed over a long time and built on a number of fundamental pillars. Some of these pillars are as simple as common cultural interests, but the most It s easy to spot the size of these markets, but tough for some companies to appreciate the diversity within them It is vital to adapt the core DNA that runs through a brand and its products to make it personally and culturally relevant at a local level Incite, 6th Floor, The Place, 175 High Holborn, London, WC1V 7AA, UK T: +44(0)20 7438 4950 | F: +44(0)20 7240 9616 Copyright Incite Marketing Planning Ltd. All rights reserved Incite 2012 GLOBAL CONSUMER CHALLENGE NEWSLETTER SUMMER 2012 PAGE 3 important is a deep emotional understanding and bond between each other. Thinking of brand relationships in this way and appreciating what drives a great relationship is fundamental to ensuring the success of a brand. The likes of Coke and McDonald s have spent years building relationships with consumers in India, China and Brazil, just as they did in the US and Europe. The first steps to developing a great brand relationship are to become fully immersed in the local culture, understand the psychology of the consumers, identify the established behavioural economics at play and then challenge what is found in order to understand how local relationships work. Brands then need to use this insight to challenge themselves; to look in the mirror and recognise that they are not the same as the local consumer, but that only by adapting themselves their personality and the other 4 Ps can they can develop a great relationship. In addition to ensuring high availability and

historically benefiting from weak competition, Nokia has been a success story in the Asian mobile phone market for years due to taking this approach. It has spent time getting to know its local consumers and grow local relationships. In 2007 then-Nokia researcher Jan Chipchase gave a great talk at TED in California, reflecting on their research into the anthropology of the mobile phone and how it can help consumers across the world manage their lives, for example through using phones as an ATM in regions without an established banking structure. Nokia continues to take this seriously today as it rises to the challenge of the local manufacturers; investing time in understanding what makes the local consumer tick, how Nokia can be a partner to them and help them through their lives. Time will tell if Nokia and others will prosper but one thing is clear; only by appreciating the local consumer and becoming a local brand can the giants of the developed world meet the global consumer challenge. john.tearle@incite.ws 1 The BRIC markets are Brazil, Russia, India and China. They were identified by Jim O Neill as four key markets with particularly high potential future growth due to their booming populations and/or increasing productivity. Jim predicts that as well as being a source of growth, these markets will come to join, and in some cases surpass members of the G7, creating a new world order in the coming decades. Each of the 4 markets identified has since gone on to grow considerably in economic and political terms over the past decade. 2 The Next-11 , also identified by Jim O Neill, are a further group of markets where he predicted significant economic and / or political future potential. These markets are Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam.